Real estate can be a fun and lucrative business. However, it can also be a headache if you don't do your research in advance. The real estate market is extremely competitive right now with more buyers than inventory, so it's important to have a strategy in place before dipping your toes in the water. Whether you're looking to purchase a single-family home or a multi-unit complex, here are a few things to consider before purchasing your first investment property:
- Start Small
As a new real estate investor you don't want to bite off more than you can chew. A smaller unit with minimal repairs is probably the best route. Unless you have a background in construction and home repair work, you'll want to avoid a fixer-upper and stick to a fairly move-in ready property.
- Research Loan Options
You'll want to shop around for lenders and understand how a mortgage works before buying your first property. There are a variety of mortgage options and lenders vary their rates based on many factors. Many lenders consider property type and property use when putting together a lending package. Single family homes are considered lower risk and receive better rates. Unfortunately, property use is also considered in this process. Higher interest rates are the norm for an investment property versus a home purchased as a primary use home.
- Understand Outside Expenses
Obviously, the purchase price of the home is the most significant chunk of change, but real estate comes with additional costs. Consider items like property taxes, insurance, and inspection fees when determining your up-front costs for the home. You must also consider the results of the inspection. Does the home have considerable issues with features like the roof, heating and cooling systems, or exterior siding? If so, you'll want to consider how these costs will impact your overall profit margins.
- Consider the Location
Before taking the leap, you'll want to consider the location of your rental property. Is the property in a safe and growing part of town? Is it located close to convenient amenities like groceries, banking, and other retail? You want to make sure the space is marketable and situated in a desirable location. You'll also want to research the going rate for comparable homes in the area to determine if the home can produce a profit. Sites like Zillow and Trulia can help you in this process.
These tips are just a few of the many things you'll want to consider before purchasing your first investment property. Real estate is a tricky and competitive business, but with a little research and due diligence you'll be well on your way to enjoying your first investment home!